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Reverse Mortgage Condo Loans
If you want to take out an FHA reverse mortgage condo loan or use an FHA reverse mortgage acquisition loan to acquire a retirement or vacation condo, you should be aware that the rules are very different from those for fee simple properties (where you own the land in addition to the building).
Before your loan can be processed, the Department of Housing and Urban Development (HUD) must approve the entire condo complex.
You might wonder why, and the answer is straightforward. The financial and other health of a condominium complex has a significant impact on the marketability of individual condo units.
Consider the case where one investor owns 25% of the units and declares bankruptcy.
Property values would be negatively impacted if all of those units went on the market at the same time.
It might also put the association in financial trouble because dues from 25% of its condos would no longer be collected.
How do you know if you’re eligible for a reverse mortgage condo?
The HUD condo list is public information that you can access at any time.
Type your zip code into the HUD Condominium page at https://entp.hud.gov/idapp/html/condlook.cfm and hit send.
If your condominium complex is not listed, it is not currently approved. Look under the status column to see if it has been authorized or refused if it is listed (while also noting the expiration date).
If the lease has expired, the complex will have to go through the HUD renewal process.
If you don’t share any walls with another unit, your home may qualify as a “site condo,” which means it won’t require FHA approval.
This is a small number of condominiums, and a unit must meet five criteria to be labeled a site condo.
Reverse Mortgage Condo Requirements and Guidelines
HUD requires condo complexes to obtain clearance for a two-year term due to the risk involved.
A complex can re-certify before the two-year time is over to keep their approval. Some of the most common causes for a complex’s denial are listed below.
➣ Failure to contribute 10% of total annual revenue to reserves
➣ There are no HUD-compliant leasing guidelines.
➣ Ongoing litigation or special evaluations that will have a significant impact on marketability
➣ Concerns about insurance (hazard, fidelity, flood, etc.)
➣ Not all units are owner-occupied, and no single investor owns more than 10% of the units.
➣ A large number of units are behind on their HOA dues.
What Is the Next Step in Getting Approval for a Reverse Mortgage Condo?
Premier Reverse Mortgage can handle your HUD application at no charge, but we will need your homeowner’s association or management business to participate.
We waive our charge in the hopes that you will utilize us for a reverse mortgage once your application is approved.
Most reverse mortgage businesses will charge a fee or send you to a for-profit company that specializes in this type of transaction.
One of the most common issues we see is a homeowner’s association’s lack of willingness and urgency, which is generally due to misunderstandings concerning reverse mortgage condo rules.
Without a willing contact at the HOA or management business, completing the 30–60-day approval process with HUD is difficult at the moment.
The main issue is that we require a balance sheet that is less than 90 days old, as well as certain other data that most residents will not have.
If your HOA is willing to move forward, it’s advisable to put them in touch with us so we can start gathering the necessary paperwork.
We can help them with some of the more difficult items and answer any questions they might have.
We’ll also be the main point of contact with HUD on the approval because we’ve worked with them before.
What if My HOA Refuses or Claims We’ve Been Denied in the Past?
If your complex was rejected for a reason that cannot be changed, there is currently no workaround.
We can typically find out why your complex was rejected and talk about it with you.
Many complexes are “declined” because they need to make a simple modification to be permitted, such as lacking a required document in the original proposal.
Because HUD uses the term “declined” rather than “pending” or “additional information needed,” it is frequently overlooked.
If your HOA refuses to move forward with the application, you may be able to obtain all of the necessary papers.
It is recommended to contact us directly for a list of materials required to move forward. We will do everything we can to assist you.
Will the Reverse Mortgage Condo Requirements Ever Be Changed, Such as Reintroducing Spot Approval?
The response is “yes, with some tweaks,” based on our expectations. If you have a neighbor who took out a reverse mortgage on their unit without having to go through the hoops, it’s because they did so before the February 2010 regulatory change.
Prior to that date, a condo unit may be accepted for an FHA loan with relatively little documentation and a little assistance from the HOA. The procedure was known as “spot approval.”